There are plenty of ways to invest your hard-earned dollars. The most tried and true method is the stock market. Stocks (often called equities) are basically a part ownership in the company you’ve chosen to invest in. For your investment, you share in the success or failure of whichever company whose shares you have bought into. For the less adventurous there are bonds which basically represents a loan made to the company with a standard growth rate which can increase or decrease. Bonds aren’t quite as volatile as equities and so don’t see the same type of price moves that stocks do.
For the adventurous, there is also the foreign currency market. There are a few different ways you can invest in the foreign currency market. You can either invest through the standard public markets like Forex, or you can even buy currencies and precious metals directly from places like TreasuryVault.com.
How Foreign Currency Markets Work
When investing in foreign currency what you are actually doing is betting on one currency’s price in relation to another. Sounds complicated, but it’s much easier than it sounds. Take the euro and the U.S. dollar. If you were investing in the euro, you would make money only if the exchange rate between the two currencies went up on the Euro’s end. If the exchange rate goes down then you lose money. If the exchange rate goes up you gain money.
Good Investment or Bad Investment?
There are many Pros and Cons to investing in foreign currency some of these include
- High Liquidity — Foreign Currency exchange markets have the highest number of investors in any other market allowing buying and selling to be fairly easy.
- Low Cost — Foreign exchange markets allow for 50 to 1 leverage meaning you can buy 50 dollars of a currency for a 1 dollar investment.
- Round the Clock Market — unlike the stock market, some currency investment companies run around the clock meaning you can always make a trade.
- No Central Exchange — Lack of regulation keeps costs low, and because central banks set the pricing structures, incidents of insider trading and fraud are low.
So foreign currencies are easy for investors to get into without a ton of capital, and offer the ability to buy on large margin meaning that you can get a lot of bang for your buck.
- Lack of Transparency — These are broker driven markets, meaning that buys might not always get the best price because the brokers are trying to get the best price for their sales.
- High Risk/High Leverage — The price swings on most of these trades are small meaning that you need high volume to make a profit. Buying on leverage increases profits but also heightens losses.
- Self Directed Learning — There are not a lot of seasoned professionals to offer assistance, it’s up to you to educate yourself in this niche.
- High Volatility — You do not have control over the complex economic and geopolitical factors that affect currency price.This means that prices can swing wildly.
The choice of whether or not foreign currency is a good investment for you is really all up to how much risk you are willing to take and how well you can manage your money. Emotions do not play a role in investing.
Other Currencies to Consider
Aside from the standard foreign exchanges, there is a new wave of currencies that have been dominating the markets in the past 10 years. This currency is called Cryptocurrency, and there is a big market.The most famous example of a Cryptocurrency is BitCoin. Their growth has been staggering since they started in 2013.
Statistics show that an investment of $1,000 in BitCoin in 2013 would be worth approximately $400,000 today. With those kinds of profits, it is easy to see why there is such a demand. However, since they are so new some investors are wary about investing in Cryptocurrency. Research should help in this department.
There are some definite advantages and disadvantages to investing in foreign currency. High Risk and High potential profits dominate the markets, and there is also a low initial capital requirement meaning that anyone can get started. As with any investment you need to determine how much risk you are willing to take and develop a solid game plan to be successful.